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Despite Deal With TPG, Speculation That Par Could Garner Higher Bids

By Janet Morrissey July 16, 2012 4:24 pmJuly 16, 2012 4:24 pm

Shares of Par Pharmaceutical Companies surged more than 40 percent on Monday after the private equity firm TPG said it had reached a deal to acquire the firm for $1.9 billion, or $50 a share. But some in the industry believe that the TPG bid is below the company’s true value, indicating that other suitors could surface.

In a note on Monday, an analyst at UBS, Ami Fadia, said potential takeover bids from another company could reach as high as $60 a share. She also raised her 12-month price target on the stock to $58 a share, well above TPG’s offering price.

“We believe that this business can easily generate cash flows of about $200 million to $250 million a year, which we value at closer to $60 a share in the hands of a strategic buyer who would be able to drive synergies,” Ms. Fadia wrote in a note. She says any rival bidders would likely be foreign generic drug companies that are looking to expand into the United States.

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Another analyst, Kevin Kedra at Gabelli & Company, pegs the company’s value even higher, at $67 a share, also adding that rival suitors would likely be foreign firms. “Likely buyers would probably be a specialty pharmaceutical company or an international company – maybe a European company that’s looking to make a big move into the U.S.” he says.

Par’s board unanimously approved TPG’s buyout offer, but did indicate it would seek out third-party bids through Aug. 24. However, it’s not clear if Par would have to pay a break-up fee if it finds a superior offer and walks away from its deal with TPG.

A spokesman for the company was not immediately available for comment on the matter. The TPG deal requires approval from Par shareholders to proceed.

At least two law firms – Levi & Korsinsky and Bernstein Liebhard – issued statements indicating they’re investigating the company’s board for possible breaches in fiduciary duty in connection with the agreement to sell to TPG. The law firms said they would examine whether the board failed to adequately shop the company before reaching the deal with TPG, and whether TPG is underpaying for Par’s shares.

Par , which develops, makes and markets generic drugs and niche proprietary pharmaceuticals, has more than 60 products on the market, 28 drugs awaiting approval from the Food and Drug Administration and more than 30 in active development.

That pipeline could make it attractive to companies in the industry like Novartis’s Sandoz unit, Ranbaxy, Stada Arzneimittel and Sun Pharmaceutical, analysts said.
Par’s chief executive, Patrick G. LePore, said the board considers TPG a good fit for the company’s long-term growth.

“While my focus and that of the Par board of directors was on shareholder value, we are very pleased that Par will be acquired by TPG, a leading global private investment firm whose substantial resources and healthcare experience will enable Par to continue to invest in its future long-term growth,” he said in statement.

Monday morning, Par’s stock jump as high as $52.22 before pulling back slightly. It closed the day at $50 a share, exactly at TPG’s offer price.